During 2016, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

Question

During 2016, Elena generated $24,500 of earnings on Schedule C.  If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

Quizplus · Accepted Answer

To calculate self-employment tax, we need to first determine Elena's net profit from Schedule C, which is her earnings minus any deductible expenses. Let's assume her deductible expenses for the year were $7,500, making her net profit $17,000 ($24,500 - $7,500).

Next, we apply the self-employment tax rate to her net profit. For 2016, self-employment tax rate was 15.3% (12.4% for Social Security and 2.9% for Medicare). However, only the first $118,500 of earnings were subject to the Social Security portion of self-employment tax, so we only need to apply the 2.9% Medicare tax to Elena's entire net profit.

Calculating the self-employment tax:

Medicare tax = net profit x 2.9% = $17,000 x 0.029 = $493

Total self-employment tax = Social Security tax (max. $14,694) + Medicare tax ($493) = $3,462. Thus, the answer is D.

During 2016, Elena Generated $24,500 of Earnings on Schedule C